You may have read my previous article, Annual investment allowance, warning about the end of the temporary increase in the annual investment allowance (AIA) cap of £1million. I mentioned how there had been calls for this to be extended, and we have now received the welcome news that the temporary increase has been extended for a further year, until 1st January 2022.
We were due to revert back to the £200,000 cap in AIA from the 1st January 2021 but in an attempt to stimulate investment, HM Treasury have extended the temporary increase period. The move is also intended to boost confidence as companies look to weather the pandemic and plan for the future.
As a reminder, AIA entitles a business to a 100% deduction against profits, for the cost of certain capital purchases made for use within your business, in the year of purchase. Although the below is not an exhaustive list, the following capital expenditure qualifies for AIA:
• Plant and machinery, including the cost of installation, alterations made to buildings to enable the installation and demolishing
• Integral features of buildings
• Some fixtures and fittings
• Most vehicles (the main exception being cars)
Therefore, if you are looking to invest within your business over the coming months/ year, you may be able to claim AIA on allowable capital purchases up to £1million, getting tax relief in full during the year of purchase.
Please do however always get in touch with your Thomas Westcott adviser before making significant capital purchases, as it is worth still noting that depending on your accounting period end, your total AIA for that particular accounting period may mean that the full £1million is not available. This is always the case during a period of temporary AIA increase, but for any full accounting year ending between now and the 31st December 2021, the full £1million AIA will be available.
By Robyn Jennings, Director